Asian institutional demand for newer investment strategies, such as smart beta, environmental, social and governance (ESG), and thematic investing, is rising as they seek to bolster returns, forcing index providers to introduce more innovative offerings, according to a senior executive at S&P Dow Jones Indices.
"Investors are looking for alternative strategies to capture growth and enhance returns," Priscilla Luk, the company’s head of global index research and design for Asia Pacific, says in an interview with Asia Asset Management on the sidelines of the index provider’s recent seminar in Kuala Lumpur.
"So, we do get a lot of demand from institutional investors for all these various strategies. Therefore, more than ever, innovation plays an important role for our company, as we need to create tailored index solutions to cater for investors' various investment needs," she says.
Her company has launched several benchmarks to accommodate demand from Asian investors, including the S&P Economic Cycle Factor Rotator, the S&P ESG Index, S&P Kensho New Economies, and S&P China A Venture Enterprise.
Within smart beta, Ms. Luk says investors are showing "strong interest” in adopting multi-factor and factor rotation strategies.
A smart-beta strategy typically focuses on one factor whereas a multi-factor strategy gives investors exposure to a portfolio of stocks that are based on various factors, such as growth, value, low volatility and quality.
Factor rotation is a strategy that identifies and rotates through certain factors that tend to outperform in different phases of market cycles. For example, quality stocks are likely to outperform during an economic slowdown, while value stocks tend to do better when an economy is recovering.
Ms. Luk says thematic investing can help investors who are looking for alternative strategies to boost returns.
"With thematic strategy, investors can gain exposure to particular sub-sectors of the economy, like artificial intelligence, and robotics," she says.
ESG investing is also gaining traction among large investors in Asia with the rise in responsible investing mandates from pension funds and governments, she adds.